In the past decade, Congress has enacted 17 major revenue measures. That means new income tax legislation is introduced before taxpayers have absorbed the provisions of the previous legislation. Result: It seems no one knows the rules of the game -- not even the Internal Revenue Service or members of Congress.
The American Institute of Certified Public Accountants is appalled. The institute is leading an effort to encourage Congress to simplify the system. With luck, some effort toward tax simplification may be debated this spring.
"The laws are so complicated for some taxpayers that many people have stopped trying to figure it out. They send in their return to see what happens," says Doug Stives, a Red Bank, N.J., certified public accountant. "Some returns are not just complicated; they defy explanation. Returns that before 1986 might be 10 pages now can be 50 to 60 pages."
"Congress can't raise taxes so they add complexity by adjusting the base," says Victor Barton, CPA, of Washington. "The IRS tries to micromanage everything to the extent that you have exceptions to the exceptions."
Stives says people bring him returns in which they disregarded the alternative minimum tax and completely fouled up their computation of passive losses.
You don't have to be rich to be confused by the increasingly baffling federal income tax system. For most taxpayers, simplified forms and an enlarged standard deduction make filing easier. Yet, if you can't use the short forms, you still can encounter problems.
Such matters as selling your home, divorcing or retiring can increase the complexity of your return. If you itemize deductions, invest in a partnership, have excessive medical expenses or casualty losses, you're in trouble. First, you have to learn tax jargon just to gather the right information. Then, you need to calculate the complex math of your taxable income and liability.
Small business owners or owners of shares in "S" corporations can be overwhelmed. Their taxes are complicated by rules set up for large corporations and the wealthy. The government assumes they will have the same level of sophisticated accounting help as the rich, who make financial decisions based on the tax consequences.
Estate planning, say the critics, involves a maze of tax rules that defy all but the wizards of law and finance.
If it has its way, the accountants group will get some of the snags untangled. If it succeeds, your annual tax ritual could become less stressful. Right now, the odds of that happening are low.
The causes of complexity are well known. It is only partly %J because Congress amends or revises the tax code with such frequency. Some of it, say experts, is because our economy is more complex. Others blame the sunshine laws that force legislators to debate tax provisions in public, exposing them to pressures from the hordes of lobbyists asking for special treatment -- and threatening congressmen who don't go along. Tax writing is thoroughly politicized, empowering legislators to favor supporters and punish opponents.
The process of writing tax legislation also introduces complexity. Congress goes through gyrations to raise revenue without raising taxes, often attaching revenue legislation to other bills at the eleventh hour. Some say Congress should not get as involved in the details of tax law as it has. Yet, since it has seized control from the tax experts, the Treasury Department and even congressional staffs, the blame for complexity falls directly on the Congress.
Among the areas that need simplification, according to several accountants, are the alternative minimum tax and the passive activity loss rules. They doubt that these regulations can and will be applied properly, even by the IRS.
The accountants' group's tax simplification committee, chaired by Robert M. Brown, already has submitted scores of recommendations to the House Committee on Ways and Means, including many that simplify the rules for employee benefits and estate planning. More will be submitted in coming weeks. In response, Chairman Dan Rostenkowski has indicated he will schedule hearings in this session.
Even so, unless ordinary taxpayers express their concerns, nothing much is likely to happen. You shouldn't anticipate any broad overhaul. Yet, even fixing a few of the problem areas would be a welcome reversal of the past decade.